What does brushing twice a day have to do with profits and impact?
Do you brush twice a day? You don’t have to answer that. :) I hope that you do.
The count of the number of times you have brushed is very helpful in getting you to brush in the morning and night. However, that count is NOT EQUAL TO dental health, which is what you are truly after. In fact, your dental health cannot be counted! Sure, you can count the number of cavities, but if two people had the same number of cavities, you wouldn’t be able to say much about relative dental health. You’d have to go deeper, perhaps do X-rays. But wait. If all you wanted was to get to dental health, then there is probably nothing as simple as the count of the number of times we’ve brushed to get us there through the act of brushing. This leads us to a profound realization.
What truly counts is not countable. What is countable does not truly count.
Try it with anything that you count. You will find, like I did, that this statement shockingly holds true. So should we end our engagement with metrics? Not at all. Metrics are black-and-white constructs that drive action.
Good metrics are those that drive productive action toward value creation.
The count of how many times we brush is a great metric to get us to brush so that we may bring dental health into our lives, as opposed to just talking about it. There are wearable devices that have changed the game for many people in getting out of the office and exercising, simply by counting the number of steps they have taken during the day.
These insights are the result of deep inquiry on the nature of value. All metrics are systemic values — artificial constructs created in our minds to make our world more manageable. They cannot even come close to capturing the practical value that we derive from our world (as we can see from the brushing example), and we can forget about coming anywhere close with metrics to the deeply meaningful intrinsic value of life itself that cannot even be enumerated.
As I slowly started to accept the truth of this assertion on counting, I found myself questioning the prevalent worldviews on profit and impact. What follows are two conversations that explore both profit and impact as metrics that are only useful if they drive productive action.
Experience: Sep 2011, Menlo Park
The Office of SmartOrg
“The purpose of our business is really to make money.” My boss, David, said this to me with a deadpan expression. The ground had fallen beneath my feet. Panic. Everything I stood for felt under attack. All I had told my friends about the values of my workplace were just swept away with these words. In a past life, I might have wept. Or I might have stormed out and resigned. But now, I waited, and observed the storm inside.
Strange things happen when you look into the heart of a storm. You start to see what is real for you. And you are surprised by what you find. I looked up and responded, “Really? Wow. You chose the worst business you could have to make money.”
“Think about it. It is so hard for us to get a sale, in-spite of so much hard work. Our business, at the heart of it, is to help people learn the language of uncertainty so that they can tell their whole truth, instead of lying with numbers. We do this with our attitude, our framing, our numerical techniques and our software. We shed our blood day in and day out, so others can experience the beauty of telling the truth in their daily work, instead of fudging numbers to get ahead. And in spite of very few people actually appreciating this tremendous mission, the people in this company have been at it for over ten years.”
“So, we really chose the worst possible business to make money.”
Indeed, if profitability is the only measure of success, then we ought to have changed our company’s name from SmartOrg to UnsmartOrg!
I continued, “No. You are not here to make money. And I can tell you why you are here.”
“Hmm..” David had now started to smile. I could tell he was enjoying this. “Why?”
“Because you are insane.” A bigger smile, and a pause.
“Yes, you are insanely in love with this line of work, and money is what helps you and the rest of us to show up. It is what keeps this shop running. But it is not why we are here.”
A big pause. A deep smile. And then, he said softly, “I agree with you.”
In the years to come, David would become my primary supporter, mentor, teacher and collaborator in applying breakthrough ideas for business. I would learn that this insight on purpose has far bigger implications on business than I could ever imagine.
I would learn that profits are a metric of great importance for they drive action around the flow of resources.
Flow is core to the vitality of an organization. The profit metric helps an organization use monetary resources wisely as they support their core service to humanity, whatever it might be. When measured wisely, this metric is a powerful confirmation that there is a community that is actually finding the work of this organization useful and helpful, enough to support it with their hard-earned resources.
What happens when we start to believe that profit is intrinsic to an organization’s purpose? Henry Ford answered this question when he said,
“Business must be run at a profit, else it will die. But when anyone tries to run a business solely for profit … then the business must die as well, for it no longer has a reason for existence.”
Disney put it even better,
“I don’t make movies to make money, I make money to make movies.”
If you know of people who think they work solely for profit, you can try a little test. Offer them the following deal, “You will get the next year’s paycheck on the condition that you cannot work a single day all of next year.” It is quite likely that you will find what I found: most thoughtful people would not accept such a deal. Some may hate their present job, but the prospect of cutting off one’s volition to serve is too big a price to pay for most people. This leads me to believe that when people state that they are working solely for the profit metric, they are actually misspeaking.
Let’s look at the other claimed purpose of business — that of creating shareholder value, or profit for the shareholder.
Saying that a business’ sole purpose is shareholder value creation is like saying that the sole purpose of my life is to make my bankers happy.
When phrased that way, those who claim shareholder value creation as the sole purpose of business now find it silly. Yes, we must pay back what is owed to our bankers, but that is a statement of obligation, not a state of being.
All the economic theories of the world cannot save a business that has confused the profit metric as the sole purpose of their existence. Working in such organizations is like working in a lifeless environment where people burn out. Can one come up with a different measure than profit to capture that which is ineffable and intrinsic?
In Brent Schlender and Rick Tetzeli’s insightful book “Becoming Steve Jobs,” ace Apple design guru Jony Ive recalls a conversation with Apple’s then CEO Steve Jobs on how they’d determine that they had really succeeded. They quickly rejected share price, as also how many people bought their computers, for that would indicate Microsoft was more successful. They finally arrived at a remarkable metric — did they feel really proud of what they had collectively designed and built? Jony Ive says in the book,
“There was definitely pride, in that the numbers reflected that we were doing good work. But also I think Steve felt a vindication. This is important. It wasn’t a vindication of ‘I’m right’ or ‘I told you so.’ It was a vindication that restored his sense of faith in humanity. Given the choice, people do discern and value quality more than we give them credit for. That was a really big deal for all of us because it actually made you feel very connected to the whole world and all of humanity, and not like you’re marginalized and just making a niche product.”
This perspective of being connected to humanity in a specific, unique way may sound idealistic in western business literature. It brought back twenty-year-old memories from the opposite end of the world.
The Purpose of Business is to Be a Business of Purpose
Experience: 1993, Chennai, India
Conference Hall in a College
“I want you to come with me,” my father said. I was fifteen and a high school senior at that time. He continued, “There is this octogenarian monk I know who is going to give a lecture on business. He never repeats his words. You also won’t forget what he says.” The lecture was organized by a company in India, and the speaker was Swami Ranganathananda, the head of the Ramakrishna order of monks at the time. It was only decades later that I was struck by the oddity of a monk being asked to give a talk on business to those who were in business, but such contradictions are part of daily life in India.
The Swami started very simply, as my father had predicted, never repeating a single word. He got right to it and defined business. “Business is service. You serve others in a unique way that you are able to, and in return for that service, people compensate you out of gratitude. Don’t worry about compensation; focus instead on service. For if people are truly served, your compensation is bound to come.”
In my fifteen-year old mind, I remember nodding. Yes, it made total sense. Why would anyone think any other way about this? Soon after, in a dialog with a favorite uncle, I remember discussing the monk’s view. He grinned at me and then posed a riddle, “There was a grocery shop near the train station and another one near a bus station. There was a third one that was in the middle. Do you know which one did the best business?”
I scratched my head, trying to figure out whether the train station would get more grocery customers than a bus station. As several reasons on either side popped in my head, I could not answer. My uncle grinned again and said, “It was actually the grocer in the middle. For his behavior with his customers was the best, and they all loved him.” The light bulbs went off for me. Ah, so service to others was deeply connected with our behavior in business. By picking volume of customers, I had latched onto the profit metric and not left room for other narratives. I didn’t think of customer satisfaction metrics, and certainly did not know at that time about a whole field of study that would allow me to understand the holistic experience of a customer without reducing it to a few quantitative measures.
Twelve years later, I would join Stanford University’s School of Management Science and Engineering, taking classes on business. As no one discussed the purpose of a business, but focused more on how to make a business work, my understanding of the purpose of a business would remain unchanged from what I had heard in 1993. It was only after interfacing with a broader non-academic world that I would learn about the obsession with the profit metric or shareholder value maximization.
While it is easy to understand for-profit businesses getting obsessed with the profit metric, surely non-profits are spared a similar metric obsession. Are they?
Experience: Nov 2015, US East Coast
Non-profit Workshop on Values
“You just lifted a big block off of my shoulder,” said the scientist, with a big expression of relief.
“What do you mean?” I asked.
“Well, here at our non-profit, we are constantly beaten with a stick to measure impact. And you are telling us that what matters cannot be measured!”
“That is correct. That is my conclusion. Good metrics drive productive action; they don’t measure value.” I replied.
“Looks like we can all breathe now.” said the scientist. It was a powerful moment in a room of forty people, most of whom were highly trained scientists working on major environmental projects.
While in a for-profit, this mistake leads to an obsession with the profit metric, in a non-profit, the obsession is usually with measurable impact. This obsession is particularly bad with scientists who are on a constant journey to find truth, and are to be found quibbling about how a metric of value misses out on so many factors that are actually important.
Shifting our thinking from being intellectually correct to driving productive action is a major shift. It frees us up and orients us toward productive action.
Beyond any specific metric, we need to fundamentally rethink our descriptors of organizations which are currently defined on two ends of the profit metric as “for-profit” and “not-for-profit.” These labels imply the opposite of what people in these organizations believe. First, for-profits, as we have already seen, should be caring about their mission (if they aren’t already), and profits are important in how they help support the mission. Therefore, calling such mission-oriented organizations “for-profits” is a big mischaracterization.
Second, for non-profits, the problem is worse. Author Dan Pallotta points out in his book Uncharitable that the word profit, long before it was reduced to the profit metric, owes its origin to the Latin profectus, which means progress. By implication, for-profit means for-progress, whereas non-profit means non-progress. That is bizarre! No non-profit would accept such a characterization. Where did these terms come from? Non-profit, not-for-profit and for-profit are all terms created by accountants to help keep our tax accounting straight. As with all words, if we keep repeating an untruth all day long, there can come a point when we start to believe it.
Perhaps a much better unifying descriptor for both types of organizations is beyond-profit that shakes us loose from metric obsession and nudges us gently toward a deeper mission.
A beyond-profit workplace that is driven by a deeper purpose and strives constantly to achieve it becomes a space of inspiration.
Human beings are nourished by spaces of inspiration, even when they don’t know to ask for it. When touched by such spaces, they will invest to aid the survival of the values the organization stands for, far beyond any reasonable accounting with the metric of profit could support.
We are in fact biologically wired to do this, in what psychology professor Robert Cialdini calls the reciprocity principle. When someone has helped us, we feel obliged to return the favor. Marketers often use this in cheesy ways by giving us gifts to get us to buy things we don’t need. However, at its core, the principle not only holds, but leads to an even deeper principle.
The greatest service one can do to other human beings is to help them find meaning in life.
The reciprocity that emerges from such a service that has been rendered is beyond transactional accounting.
A real-life example of such reciprocity in the non-profit world comes from the Hazelden Foundation, which is committed to serving those with addiction problems. Noting that people who come to their spaces are almost utterly defeated, they wanted their spaces to embody their core values of respect and dignity. This meant a careful overhaul of every aspect of the client experience. Instead of wanting addicts to feel like they are checking into an institution like a broken person, Hazelden wanted them to feel like they are coming home. This meant redesigning their spaces, down to the chairs clients sit in.
When the project to improve one facility was announced, employees of the Foundation protested, and asked instead for a raise or bonus. When they understood that this had to do with their core mission of treating their clients with respect and dignity, the employees, who could very well do with a raise, backed down and supported the project. By counting the quality of design of their spaces, they counted the uncountable value of dignity of their clients over the countable dollars that could have gone into their own pockets. When the project completed, and they saw what a difference the changes made to their clients’ experience (and their mission), staff at other facilities wanted to get on the wait-list to make the same changes at their locations!
Another example comes from a remarkable school that our daughter goes to called The Peninsula School in Menlo Park, California. This non-profit school prides itself on creating a space for education that is based on community as opposed to consumption. This is a hard concept to get our heads around. When I pay the fees for my children’s education, subconsciously, I am telling myself that I am done — the school now has to do its job. I had to catch and correct my own transactional thinking every time community events required my participation. What truly inspired me though was the metric this school used in its annual fund-raisers.
The school uses tuition fees to pay the salaries of the teachers. However, that isn’t enough for the functioning of the school — it relies on the generosity of the families who send their children here to raise its operating budget. People of greatly different backgrounds attend this school, and it is quite easy to pay much more attention to those families that are affluent. Indeed, if the fund-raisers were to be operated on the metric of the operating budget, that would send a clear message out to those who could only make a modest contribution that they did not really matter. The school chose an entirely different metric to manage their fundraiser: percentage participation. Their goal — a 100% participation of all Peninsula School families. The message from this metric: give whatever you can because you are a part of our school family. The act of giving bonds each family to the school in a relationship of love and support. This creates an entirely different school culture — instead of school administrators guilt-tripping parents to shell out more money, volunteer parents warmly encourage other parents to focus on participation at whatever level they feel comfortable.
Whether you are in business, government, non-profit or academics, the metrics that surround you drive your action. The purpose of all these metrics is to drive productive action, and if you instead interpret these metrics as a measure of value, a very different set of counter-productive actions can emanate. This realization is an invitation to make an audacious attempt to first understand what productive action is in your context: that action which helps your work come alive and connects you to the rest of humanity through your unique contribution. Only then can you identify metrics that help with creating a space for productive action.
Suggested Questions for Reflection
- What does productive action look like in the context of your work? What are some great metrics that drive this productive action?
- What would your for-profit organization look like if you reimagined it as a beyond-profit, where profits are not disrespected, nor are they thought of as the reason for existence?
- What would your non-profit organization look like if you focused on driving value creation instead of measuring impact?
- Do you feel like you are already working in a beyond-profit organization? What are the core values that drive your organization and what do you measure to drive action toward those values?
I would love to hear your reflections in the comments. If you liked this piece, you can also read the previous chapter. If you’d like to be notified of future chapters, please click on Follow.
Somik Raha holds a PhD in Decision Analysis from Stanford University and is Head of Product at SmartOrg, Inc. His dissertation research with Prof. Ronald Howard focused on achieving clarity on value, during which he discovered the work of Robert Hartman (see previous chapter) that led to his insight on profits and impact, and more generally, counting itself. This article is an excerpt from a book on counting that Somik is working on.